If there was one good thing that came of the highest inflation seen in over four decades, and the painful interest rate hikes by the Fed that followed, it was the corresponding higher interest earned on cash.

For much of the 2010’s, bank customers joked that they were lucky to have earned just 1% on their savings accounts.

Then, 2022 happened, and before we knew it, high yield savings accounts were being marketed left and right with rates as high as 4 or 5%.

Over the past year, inflation has closed in on the Fed’s target rate of 2% (the U.S. Bureau of Labor Statistics’ latest CPI reading was 2.7%), and the Federal Funds rate has been cut to 3.50% to 3.75%.

As such, high-yield savings accounts have become less “high yield” and can be expected to drop further if the Fed continues cutting rates. However, the past few years have taught consumers a lot about how cash and cash equivalents work. Here are some better banking habits to carry throughout this year and beyond.

Savings Account or Checking Account?
As a CFP®, I generally advise clients to use their checking account like a pass-through account not meant for wealth accumulation.

It should be used to pay fixed monthly expenses such as the mortgage or rent, credit card bills, etc. I believe one checking account is usually adequate, a joint account for married couples, as simple and organized is often better.

Savings accounts should be earmarked as the "emergency fund", which I always recommend being at least six months' expenses.

Whether this is a money market fund or a high-yield savings account will likely not make much difference in the long haul. The important thing is that it is properly funded.

Maximizing Interest Earnings on a Checking Account
I often see clients searching for the best percentage yield on available checking accounts. While this makes sense, it can be like squeezing water from a rock.

Checking accounts should not be considered a place to "make money." I often describe cash or cash equivalents as a necessary evil.

A sound financial plan must have liquidity to address both the “rainy day”, and opportunities that may arise.

But hoarding more than this in a checking or savings account over an extended period is not advisable as it's continually losing against inflation.

I often say that “Rich people work hard and make a lot of money, but wealthy people work hard and their money makes a lot of money.”

Unless the client has an extremely conservative risk profile, then unearmarked funds above and beyond six months' expenses should periodically be swept into an appropriate investment portfolio, allowing their money to work hard and potentially earn more money.

Common Fees and How to Avoid Them
Some of the most common fees on a checking account involve a monthly maintenance fee if the account falls below a certain minimum balance.

A good solution to this can be setting up direct deposit of your paycheck, so that the checking account is continually funded.

Another common penalty can be due to overdraft fees.

Two fixes for this can be either opting out of overdraft coverage so that purchases are declined rather than over drafting the account, or linking your savings account which can then cover any overage.

The last and maybe easiest way to save yourself from unnecessary fees is by enrolling in electronic-delivery statements, as many banks may charge monthly paper statement fees.

Features to Consider for an App-Based Bank
Always make sure you are using a legitimate FDIC-insured bank. The standard FDIC insurance limit is $250,000 per depositor, per insured bank, for each account ownership category

Since the rise of high-yield savings accounts, wealthy customers may have eclipsed this amount while choosing to park their money in the bank rather than in bonds or a fixed income portfolio of similar or less yield. This may necessitate using more than one bank.

From a digital security standpoint, customers should always enroll in two-factor authentication for all logins. They should also exercise caution when syncing up their checking or savings accounts for automatic bill pay or drafts as this can spread their exposure to a breach across more platforms.

Budgeting Tips
Many banks now offer budgeting features or account linking to similar apps. These tools often reveal habits that customers never even knew were there (i.e. how much is actually spent on subscriptions, eating out every month, old gym memberships, etc.).

There are two ways to properly manage a budget, control your expenses or control your savings. I prefer the latter, following the age-old advice to “Pay Yourself First!”

I encourage my clients to allocate 20% of their gross income toward wealth accumulation. This includes retirement plans, investment accounts, high-yield savings, etc.

A 20% gross savings rate is a great way to speed up wealth building. If this can be automated monthly into various accounts that make up a financial plan, it relieves much of the stress around monitoring expenses to try and back into the formula.

If you’d like to learn more about better budgeting and how liquidity fits into an overall financial plan, be sure to check out Bryan Kuderna’s upcoming book Simply Wealthy: The 4-Step Plan for Financial Freedom.

This article is intended for the general public and for informational purposes only. This should not be considered investment advice. Readers should consult their own financial professionals, legal, and tax advisors to discuss their specific situation.

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Bryan M. Kuderna is a Certified Financial Planner® and the founder of Kuderna Financial Team, a New Jersey-based financial services firm.  He is the host of The Kuderna Podcast and author of Simply Wealthy: The 4-Step Plan for Financial Freedom.